Tips

Payroll

How the new National Insurance thresholds work

The National Insurance threshold from the 6^th July will increase to £12,570, which means employees must earn £12,570 per year before paying National Insurance.

Sage 50cloud Payroll V28.02, has the new thresholds added to your Legislation Settings and automatically applied correctly based on your process date and employee status.

Employees

The new NI thresholds are automatically applied on all payrolls with a process date on or after 6^th July 2022. The date employees are being paid for are not relevant to the NI thresholds, instead, it is the process date that decides which thresholds are used.

HMRC require that NI for employees is calculated period by period rather than as a year-to-date calculation.  This means that NI values calculated using the new rates are not affected by any NI calculated prior to 6^th July 2022.

Directors

The new NI thresholds are applied differently for directors depending on their status.

• Pro-Rata (Table) – NI for directors who have a Pro-rata status is calculated using the new Primary Threshold each period from 6^th July onwards. This is then re-calculated in a year to date calculation using the Directors Primary Threshold, either at the end of the tax year, or if the director leaves during the tax year.
• Annual (Non-Table) – The new Director Primary Threshold is correctly applied in the next period as soon as v28.02 is installed, even is the process date is before 6^th This may cause a re-calculation of NI liability if the director has already exceeded the original Primary Threshold, as the annual calculation will use the new Director’s Primary Threshold.

Re-process pay Periods

Once you have installed v28.02, when you re-process a pay period the NI threshold used depends on the employee’s status.

Employees and Pro-Rata directors– If you reprocess any periods before 6^th July the old thresholds are used.  If you re-process any periods with a process date on or after 6th July, the new thresholds are used.

Directors

• Annual (Non-Table) – The NI calculation for any period you re-process in the tax year uses the new Directors Primary Threshold.

If you would like help with the new National Insurance thresholds or need help installing Sage 50cloud Payroll V28.02 or need any other help or advice with your payroll please contact us